The Direct Impact of the Normative and Cognitive Distances and the Moderating Effect of Regulations on the Internationalization of SMEs

Purpose – This chapter analyzes the relation between normative and cultural-cognitive institutional distance and the international entry forms of SMEs. We also examine the interaction effect of each of these distances and the regulatory development of the destination on entry mode choice. Methodology/approach – This chapter deals with a multilevel analysis of a database of European SMEs containing information on different locations and three entry forms: exports; collaborative modes and direct investment. Findings – The results indicate that greater levels of normative distance increase the likelihood of using collaborative forms in SMEs. Similarly, the findings also show that the preference for collaborative forms grows as the cultural-cognitive distance increases. In both cases, the study finds a positive moderating effect of regulative institutions on these relations. Originality/value of chapter – The chapter contributes to the literature by separately considering informal institutional dimensions such as normative and cultural-cognitive distances, as well as examining how the regulatory development of the destination may moderate these relations. Additionally, the study sheds light in the development of the literature on SMEs, both by using the institutional theory to explain the internationalization of these firms and providing a more complete picture of their entry modes.